Today, the Senate Banking Committee is holding a hearing titled “The Reemergence of Rent-a-Bank?” The goal of this event is to start the process of turning back progress made under the Trump administration to help those with less access to the banking system than others, e.g. younger people, people of color, and immigrants. 

Democrats claim they want to help society’s most vulnerable, yet their efforts to roll back what’s known as the “True Lender Rule” would leave the unbanked and underbanked out in the cold. They would hurt small, community banks which struggle to compete with large, well-funded banks that possess the deep pockets to build technology platforms that reach new customers. 

Last fall, the Trump administration’s Office of the Comptroller of the Currency (OCC) issued a rule clarifying that banks—when they followed clear rules—would be able to serve as the “true lender” when partnering with third party groups, including very often, financial technology companies, or “fintech” firms. These online platforms serve as intermediaries with customers. The phrase “true lender” is meant to clear up any confusion about who is offering a loan to a consumer—it’s the bank, not the fintech or any other third party.

This move was important in expanding financial offerings to customers because it gave legal clarity to both fintech firms and banks. A survey by banking consulting firm Cornerstone Advisors found that 65 percent of banks and 76 percent of credit unions said fintech partnerships were important to their business strategies in 2020. Small community banks are most desperately in need of third-party fintech partnerships. They can’t afford to acquire technology companies or hire the requisite full-time staff, so they struggle to offer the range of tech products and services that consumers need and expect.

Consumers increasingly demand these online financial services. A survey by the Federal Deposit Insurance Corporation found that the share of Americans primarily using online or mobile means for their banking rose from 38.6 percent in 2013 to 51.6 percent in 2017. The COVID-19 pandemic has likely accelerated this trend.

Community banks have struggled in recent years to stay afloat rather than shut down or be acquired by big banks. Yet community banks are just what many communities need right now. They are more likely to have personal relationships with their customers, especially helping customers when they are struggling. If the True Lender Rule is reversed, these community banks will struggle even more. 

Industry experts also believe that if Democrats are successful in rolling back the True Lender Rule, these vulnerable customers would be more likely to turn to potentially costlier alternatives such as overdraft fees or payday loans, which have much higher interest rates and steep balloon payments. 

Democrats claim they want to help people of color, immigrants, and young people. Instead, by limiting options for the unbanked and underbanked, they are doing the reverse.